Most people would never consider opening a business without first purchasing property insurance to cover the cost to repair or replace a building or equipment that’s been damaged due to a covered peril. But too many business owners fail to think about how they would keep their business afloat if they were forced to temporarily close. Business interruption coverage also known as business income coverage, can help with operating expenses during the period of restoration, and includes:
Business owners should make sure the policy limits are sufficient to cover their company for more than a few days. After a major disaster, it can take more time than many people realize to get “back in business.” Business interruption coverage likely has a "restoration period.” This is the length of time that a policy will help pay for lost income and extra expenses while the business is being restored. Typically, there’s a 48 to 72-hour waiting period before the period of restoration kicks in. The standard property policy limits the business income restoration period to 30 days, but this period can be extended to 360 days by endorsement.
A business owner’s policy (BOP) often combines property, liability and business interruption coverages for small–to-midsize businesses. Coverage purchased as a package is generally less expensive than if purchased through separate insurance policies and can help ensure proper underlying limits are in place. Normally, companies with 100 employees or fewer and revenues of up to about $5 million or less are candidates for a BOP. Some types of businesses, such as restaurants, may be ineligible for a BOP because of the specific risks inherent in the business and may need to consider buying the individual coverages separately. An endorsement or rider can be added to a commercial property insurance policy that will extend the policy's coverage to business interruption losses.
Business interruption insurance does not cover:
A good rule of thumb is to use a business’s gross earnings and projections to estimate future profits and determine the right amount of coverage. Remember, if business interruption costs exceed the coverage limit chosen, the business owner will have to pay out of pocket for any extra expenses.
It depends on a number of factors, including your:
The price of the policy can also vary depending on your location. For example, if the business is in an area with a higher risk of hurricanes, the cost of business interruption insurance may increase. A restaurant might have higher premiums than a real estate agency, for example, because of the greater risk of fire. Also, a real estate agency can more easily operate out of another location.
Provides insurance coverage in the event the damage or destruction of non-owned property reduces or terminates the business owners’ earnings. With COVID-19 disrupting global supply chains and sales, businesses are losing income and incurring additional expenses as a result of the interruption.
There are four types of entities that qualify as eligible dependent properties:
Business interruption insurance can also include extra expense, which will cover anything beyond the normal day-to-day operating expenses that are necessary to keep a business solvent. Instances of extra expenses include:
Extra expense insurance can be bundled in a Business Owner’s Policy (BOP), as a separate insurance policy or as a rider to a commercial property policy.
This coverage – which typically does not exceed two consecutive weeks – applies when a civil authority (e.g., state, local or federal governmental entity) prohibits access to an insured’s premises due to a government order as a result of physical damage to an adjacent or nearby property, not owned or controlled by the insured, but rather the adjacent property of another.
Civil authority coverage extends business interruption and/or extra expense coverage. Even when a government order prohibits or otherwise specifically restricts access to an insured premise, the policy may still require a direct physical loss before triggering coverage.
Note: In early February 2020 the Insurance Services Office (ISO) developed two new endorsement forms: “Business Interruption: Limited Coverage for Certain Civil Authority Orders Relating to Coronavirus,” and “Business Interruption: Limited Coverage for Certain Civil Authority Orders Relating to Coronavirus.” These forms provide coverage for actual loss of business income and extra expenses caused by a government order closing the insured’s premises or quarantining all or part of the premises and from government suspension of some modes of public transportation. If dependent properties are included in the coverage, such as a supplier’s or customer’s premises, then the coverage applies to the dependent property as well. Note that the forms were not filed with any states and are not being added to ISO’s form portfolio.
A utility services endorsement extends business interruption and/or extra expense coverage to apply to a suspension of operations caused by a disruption of basic utility services to a business’s premises such as electric, gas or water provided by public or private utility companies
There are two specific endorsements that should be considered:
For information on proposed government-backed solutions to help businesses affected by COVID-19 closures visit The Future of American Insurance & Reinsurance page.
For Triple-I coverage of the COVID-19 related insurance issues visit this page.